Cyprus bail-out to dominate meeting of finance ministers

Talks over a bail-out for Cyprus and the direct recapitalisation of banks through the eurozone’s rescue fund dominate the agenda of a meeting of the 17 eurozone finance ministers on Monday evening (11 February).

No decision on a rescue for Cyprus – which is estimated to require €17.5 billion – will be taken at the meeting, because eurozone officials and politicians have decided to wait for the outcome of the country’s general election on 17 February.

An EU official said that finance ministers will probably not decide until the second half of March, by which time the ‘troika’ of the European Commission, International Monetary Fund and European Central Bank will have evaluated the needs more fully.

The assessment is exploring Cyprus’s debt sustainability, the effects of the current fragile situation on its financial sector (large, for such a small country), and the status of anti-money laundering legislation – on which an independent audit has been commissioned. “Cyprus continues to be challenging,” the official acknowledged.

Separately, ministers will talk about the technical aspects of permitting the European Stability Mechanism (ESM) to by-pass national governments so as to recapitalise banks directly.

Leaders of eurozone member states have approved the principle, but finance ministers have been given the task of finding solutions to the complexities of such interventions. Their conclusions are not expected for several months, but on Monday they are expected to discuss what limits might be set on the capacity of the ESM to channel money into banks.

The following day (12 February), all of the European Union’s 27 finance ministers meet. It was expected that they will be in a position to approve a compromise deal between the Council of Ministers and the European Parliament on the ‘two-pack’ package of economic governance legislation. However, despite intensive negotiations there is still no deal. The Parliament, as part of a condition for signing the agreement, is seeking a commitment from the Commission that it will propose some form of debt-redemption fund in the future.

Little progress will be possible either on two other outstanding pieces of significant draft legislation – the revision of the capital requirements directive (CRD IV), and the single bank supervisory mechanism. Finance ministers are awaiting results from negotiations between the Parliament and Ireland, which holds the rotating presidency of the Council of Ministers.

Talks on both these subjects were under way in Strasbourg this week. An agreement on CRD IV is “very close”, according to Irish presidency sources. With most of the technical disagreements resolved, the focus of the negotiations has shifted to broad political issues, such as the flexibility of member states to impose tougher requirements on banks, and MEPs’ demands for rules on bankers’ bonuses. Further talks were scheduled today (7 February).

On the single supervisory mechanism, discussions are impeded by Parliament’s insistence on looking more broadly at the powers of the European Banking Authority (EBA), the pan-EU regulator. The Commission’s proposal envisages some limited adaptations to the EBA, but MEPs want to explore wider changes to the authority’s scope, such as greater authority over stress-tests of banks.

Finance ministers are to be asked to adopt conclusions related to the EU’s budget and the European Semester, the annual cycle of economic policy co-ordination, including this year’s annual growth survey (the Commission’s suggested economic priorities for member states) and a Commission report on the alert mechanism for the prevention and correction of macroeconomic imbalances (an early-warning system for member states where the Commission considers that imbalances exist).